The world’s biggest drugs companies are in talks with bankers about ways to cash in their multi-billion pound portfolios of older drugs in the face of declining sales.

The UK’s AstraZeneca and GlaxoSmithKline, American pharmaceutical groups Abbott Laboratories, Pfizer and Merck and France’s Sanofi are all exploring ways to shed their off-patent drug portfolios, according to sources.

The drugs firms are understood to have already started to sound out potential buyers. The moves come as some of their biggest-selling drugs lose patent protection and face competition from generic rivals at the same time as increased cost pressures and the difficulties in discovering new innovative medicine.

“It’s a next step in the overall portfolio rationalisation trend that is dominating the sector,” Kasim Kutay, managing director and co-head of Europe and Moelis, said.

GlaxoSmithKline has taken the boldest strides to date after segregating its off-patent into an “established drugs” division with separate financial reporting. The drug groups is working with Lazard and has already spoken with some private equity groups to test the interest in its product.

Abbott Laboratories has also been working with Morgan Stanley, according to sources, to find a buyer for its off-patent drugs. “They are shrinking to grow”, Panmure Gordon’s Savvas Neophytou said.

Private equity groups such as Blackstone, KKR, Advent and Cinven, who have prior experience in the healthcare space, are likely to be attracted by the hugely cash generative drugs, said sources.

Despite declining sales as a result of generic competition, the portfolios of older drugs still generate billions of pounds in revenues and require very little funding for marketing or research and development. For example, GlaxosmithKline’s portfolio of 50 established drugs still generates annual revenues of £6.5bn.

However, the stumbling block for private equity is how to invest in a business which is already suffering declining sales and increased competition and still generate a return five years down the line – the typical investment life cycle for buy-out groups.

In addition, the pharmaceutical companies have to consider how they would replace the significant cashflow contribution from the older drugs.

The drugs groups are also said to be keen to hold on the rights for the older drugs in emerging markets where patents are still intact.

A spin-off is one option but the equity story for investors to buy into a shrinking market is not that appealing.

Instead, it is most likely that strategic buyers will cherry-pick drugs to fold into bigger portfolios, or build on desired assets with other acquisitions.

Companies such as Royalty Pharma – which buy the royalty rights to certain drugs – could potentially play a role in part of the large drug companies’ portfolio restructurings.

However, a source close to the company said that they would only invest in the financial assets of the royalties, rather than the operating parts of the drug.